Overview: Why onshore rig counts rose to their highest since April
Land rigs up 18, offshore up four
The U.S. onshore—or land-based—rig count increased by 18 rigs, from 1,814 to 1,832, during the week ending August 8. The number of offshore rigs increased by four, to 62 compared to 58 during the prior week.
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Year-to-date, the onshore U.S. rig count has increased by 162, or ~10%, while offshore rigs have decreased by one, or ~2%.
In 2Q14, U.S. onshore rig counts increased 4%, to 1,796 from 1,724 rigs in 1Q14. They were up 5% from the 1,709 rigs recorded in 2Q13. In 2Q14, well counts increased the most in the Permian Basin at 11%, the Marcellus Shale at 16%, and the Granite Basin at 23% compared to 1Q14.
Most major oilfield service companies expect U.S. onshore rig counts to be slightly up in 2014 compared to 2013, driven mostly by higher activity in the Permian Basin in west Texas.
Gulf of Mexico drilling is the primary indicator of offshore rigs
Rig counts in the Gulf of Mexico (or GOM) indicate offshore rig activity in the U.S. because the GOM accounts for almost all offshore rigs. In 2010, the GOM rig count decreased sharply after British Petroleum’s Deepwater Horizon oil spill. In response, several restrictive measures were adopted. These led to a decline in drilling activity in the GOM.
It took the rig count in the GOM a couple of years to start picking up again and reach pre-accident levels. By September 2012, it averaged ~50. By May 2013, the rig count in the GOM started to move up. It reached its highest in October 2013, at 65. It has tapered off since then. In 2014 to date, it has averaged ~56.
In its 2013 10K, Baker Hughes expressed an expectation of growth in GOM drilling activity in 2014. It expects an additional four to five deepwater exploration rigs. It also anticipates completion and development activity in the GOM to increase.
For the week ending August 8, the rig count in the GOM was 60—two more than the count recorded in the previous week. Year-to-date, the rig count is up by one this week.
The offshore rig count can be a useful indicator to gauge the activity levels of energy companies that operate in the deepwater oilfields. These companies include Exxon Mobil (XOM) and Anadarko Petroleum Corporation (APC)—both of which are part of the Energy Select Sector SPDR (XLE).